What is a Debt Relief Order (DRO)?

A Debt Relief Order (DRO) is a new form of insolvency for those with smaller debts, but how can they help those with debt problems?

DROs were introduced in April this year to offer debt relief to people who are less than £15,000 in debt, but have very few assets and a disposable income of less than £50 per month.

The debt relief order is designed to offer a fast track insolvency process without the need to appear in court, as is required for bankruptcy hearings.

Insolvency is a last resort, however, and other forms of debt management may be suitable.

What does a DRO do?

A Debt Relief Order protects you from your creditors so they can no longer chase you for repayment, however you will be expected to repay your creditors should your financial circumstances improve.

Twelve months after the date of the DRO, your debts will be written off. You will be debt free.

How to apply for a DRO

You can apply for a DRO through an approved intermediary. The intermediary will decide whether a DRO is the most suitable form of debt relief for you.

There is a £90 fee to pay, when applying for a DRO.

Once your application is complete, an Official Receiver will examine your case and decide if your circumstance match the DRO requirements.

If the Official Receiver approves your DRO application, he will make the order without there being any court involvement. The Official receiver can, however delay proceedings, ore refuse the application altogether if he feels that more information is required or that the case does not meet the DRO requirements.

It is imperative that an applicant is completely honest and open with his information during the DRO process as it is a criminal offense to mislead the Official Receiver.

DRO Restrictions

A DRO is for people with debts of £15,000 and who have less than £300 in assets and who have less than £50 of disposable income.

In addition, many of the restrictions for bankrupts apply such as being unable to act as a company director or for a limited company, or obtain more than £500 in credit without declaring that the person is subject to a DRO.

There are also restrictions about what qualifies as debt when applying for a DRO. For example, fines, child maintenance and student loan liabilities are excluded from debt calculations.

Problems with Debt Relief Orders

Debtors considering relief under a DRO should consider the impact on their credit rating. however the benefits of fast relief from unbearable debts will probably overcome this problem for those who qualify for a DRO.

One of the biggest problems for DRO applicants is that their personal pension plan counts as assets. As the total assets cannot exceed £300, almost anybody with a personal pension plan will be disqualified by this requirement.

Although around 10,000 DROs were expected to be taken out in the first twelve months, only 1,978 have been issued so far. So even if debtors have no means of repaying their debts and are in desperate need for protection from their creditors, they will be forced into other forms of insolvency such as an IVA or bankruptcy if they have a personal pension.

Managing Debts

Although personal circumstances can change, forcing people into insolvency, protection from creditors in the form of a DRO, IVA or bankruptcy is not to be taken lightly.